LABOR MARKET RIGIDITIES

Labor Market Rigidities responsible for the Unemployment Rate in the United Kingdom and one other European country



Labor Market Rigidities responsible for the Unemployment Rate in the United Kingdom and one other European country

Introduction

Reduction, if not elimination, of unemployment is a politically sensitive issue. Most opinions expressed on unemployment in the form of simple recipes, stated as sufficient conditions. For some, it is sufficient to eliminate the rigidities of the labor market, the proposals are the elimination of unemployment to the removal of the minimum wage through a pension reform employment protection (Guerrazzi & Meccheri, 2012; Helpman & Itskhoki, 2010). For others, unemployment is an effect induced by insufficient activity, simply restart the application or require lower interest rates by the European Central Bank or abandon the Stability Pact and growth, etc. The problem of unemployment is not reducible to a single dimension and it cannot be tackled by measures marrying a single viewpoint (Nickell, 1997; Siebert, 1997). With persistently high unemployment, economists have been led to reject the hypothesis of perfect wage flexibility. New models attempt to account for real wage rigidity, as well as its corollary, an adjustment of the labor market based more on employment than on wages (Gabrisch & Buscher, 2006; Cahuc & Malherbet, 2004). We can differentiate endogenous rigidities in the labor market (in the sense that they are related to the behavior of economic agents even) more exogenous rigidities (which are rather the laws or regulations: unemployment compensation, minimum wage) (Autiero, 2008; Bouvet, 2012).

Discussion & Analyses

Endogenous rigidities fall under new approaches microeconomic employment relationships which show that the operation of the labor market is not necessarily competitive (Baccaro & Rei, 2007; Saint-Paul, 1996). The efficiency wage: This approach focuses on the role of incentive strategies in the course of the employment contract. It helps to explain wage rigidity and can also serve as theoretical foundation for the analysis of labor market dualism. The central hypothesis is that the productivity of each employee depends on his effort, which increases with the wage paid (Heiner, 2000; Paul, 1996). The company will incur additional employee as the marginal productivity is greater than the real wage per unit of efficient labor. Optimum wage, says "efficiency" is then such that the elasticity of effort with respect to wages is unitary (Léonard, 1985; Onaran, 2002). It may be that the real wage is higher than the optimal reservation wage of the unemployed. In this case, they would like to work for a lower wage, but companies prefer not to hire them at that wage would reduce the productivity of employees already hired. In this analysis, any impact that changes in labor productivity tends to change employment without changing the optimal real wage (Simonazzi & Villa, 1999; Wachter, 1976).

Can we give credit to the statistical data on unemployment? The answer is, without hesitation, so for the countries of the European Union (Helpman & Itskhoki, 2010; Nickell, 1997). Definitions and methods are now standardized and it no longer has to ...